The Atari 7800 was released in January 1986 as a successor to the Atari 5200, and was designed by second-party developer General Computer in late 1983. Unlike the 5200, the new system was cheap, used simple digital joysticks, and most importantly, was backwards compatible with almost every Atari 2600 game, meaning that people didn't have to get rid of their 2600 games or buy an adapter.

The 7800 was first introduced at the CES in May 1984, and was set for a fall 1984 release date. The 7800 would be priced at $140, and include two joysticks and Pole Position II as the pack-in game. A computer keyboard and high score cartridge (that saved high scores through battery back-up) were also planned for the new system.

However, in July 1984, Warner Communications, the parent company of Atari, sold Atari's consumer division to Jack Tramiel, who was the founder and former CEO of Commodore. Under Tramiel's new leadership, the 7800 was put on hold while Tramiel worked out contractual issues between them, Warner, and General Computer, mainly concerning payment for the system's MARIA graphics chip and launch titles. After these issues were settled, Tramiel set up finding a manager for Atari's video game division, eventually hiring one in November 1985. All of these led to the 7800's initial release being delayed by nearly two years.

By 1987, the 7800 couldn't stand a chance against the NES, due to the NES's skyrocketing popularity and the fact that developers who signed to Nintendo could not develop for other systems. Nevertheless, the 7800 was produced for almost six years, until it was officially discontinued in January 1992.

Despite it being short-lived and only having an original library of less than 60 games, the 7800 is regarded as an "underdog" system and is fairly popular with collectors. The 7800's library is mainly known for its great arcade ports (e.g. Joust, Xevious, Ms. Pac-Man), quirky original titles (e.g. Ninja Golf, Scrapyard Dog, Midnight Mutants), and outstanding homebrews (Pac-Man Collection, Beef Drop, Failsafe).